Economic Growth and Tax Relief Reconciliation Act of 2001/Title III

TITLE III—MARRIAGE PENALTY RELIEF

SEC. 301. ELIMINATION OF MARRIAGE PENALTY IN STANDARD DEDUCTION.

(a) In General.—Paragraph (2) of section 63(c) (relating to standard deduction) is amended—

(1) by striking ``$5,000'' in subparagraph (A) and inserting ``the applicable percentage of the dollar amount in effect under subparagraph (C) for the taxable year'';

(2) by adding ``or'' at the end of subparagraph (B);

(3) by striking ``in the case of'' and all that follows in subparagraph (C) and inserting ``in any other case.''; and

(4) by striking subparagraph (D).

(b) Applicable Percentage.—Section 63(c) (relating to standard deduction) is amended by adding at the end the following new paragraph:

``(7) Applicable percentage.—For purposes of paragraph (2), the applicable percentage shall be determined in accordance with the following table:

   ``For taxable years beginning                        The applicable
                  in calendar year—                       percentage is—
                    2005........................................    174
                    2006........................................    184
                    2007........................................    187
                    2008........................................    190
                    2009 and thereafter.........................    200.''.

(c) Technical Amendments.—

(1) Subparagraph (B) of section 1(f)(6) is amended by striking ``(other than with'' and all that follows through ``shall be applied'' and inserting ``(other than with respect to sections 63(c)(4) and 151(d)(4)(A)) shall be applied''.

(2) Paragraph (4) of section 63(c) is amended by adding at the end the following flush sentence:

``The preceding sentence shall not apply to the amount referred to in paragraph (2)(A).''.

(d) Effective Date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2004.

SEC. 302. PHASEOUT OF MARRIAGE PENALTY IN 15-PERCENT BRACKET.

(a) In General.—Section 1(f) (relating to adjustments in tax tables so that inflation will not result in tax increases) is amended by adding at the end the following new paragraph:

``(8) Phaseout of marriage penalty in 15-percent bracket.—

``(A) In general.—With respect to taxable years beginning after December 31, 2004, in prescribing the tables under paragraph (1)—

``(i) the maximum taxable income in the 15-percent rate bracket in the table contained in subsection (a) (and the minimum taxable income in the next higher taxable income bracket in such table) shall be the applicable percentage of the maximum taxable income in the 15-percent rate bracket in the table contained in subsection (c) (after any other adjustment under this subsection), and

``(ii) the comparable taxable income amounts in the table contained in subsection (d) shall be \1/2\ of the amounts determined under clause (i).

``(B) Applicable percentage.—For purposes of subparagraph (A), the applicable percentage shall be determined in accordance with the following table:

   ``For taxable years beginning                        The applicable
                  in calendar year—                       percentage is—
                    2005........................................    180
                    2006........................................    187
                    2007........................................    193
                    2008 and thereafter.........................    200.

``(C) Rounding.—If any amount determined under subparagraph (A)(i) is not a multiple of $50, such amount shall be rounded to the next lowest multiple of $50.''.

(b) Technical Amendments.—

(1) Subparagraph (A) of section 1(f)(2) is amended by inserting ``except as provided in paragraph (8),'' before ``by increasing''.

(2) The heading for subsection (f) of section 1 is amended by inserting ``Phaseout of Marriage Penalty in 15-Percent Bracket;'' before ``Adjustments''.

(c) Effective Date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2004.

SEC. 303. MARRIAGE PENALTY RELIEF FOR EARNED INCOME CREDIT; EARNED INCOME TO INCLUDE ONLY AMOUNTS INCLUDIBLE IN GROSS INCOME; SIMPLIFICATION OF EARNED INCOME CREDIT.

(a) Increased Phaseout Amount.—

(1) In general.—Section 32(b)(2) (relating to amounts) is amended—

(A) by striking ``Amounts.—The earned'' and inserting ``Amounts.—

``(A) In general.—Subject to subparagraph (B), the earned'', and

(B) by adding at the end the following new subparagraph:

``(B) Joint returns.—In the case of a joint return filed by an eligible individual and such individual's spouse, the phaseout amount determined under subparagraph (A) shall be increased by—

``(i) $1,000 in the case of taxable years beginning in 2002, 2003, and 2004,

``(ii) $2,000 in the case of taxable years beginning in 2005, 2006, and 2007, and

``(iii) $3,000 in the case of taxable years beginning after 2007.''.

(2) Inflation adjustment.—Paragraph (1)(B) of section 32( j) (relating to inflation adjustments) is amended to read as follows:

``(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined—

``(i) in the case of amounts in subsections (b)(2)(A) and (i)(1), by substituting `calendar year 1995' for `calendar year 1992' in subparagraph (B) thereof, and

``(ii) in the case of the $3,000 amount in subsection (b)(2)(B)(iii), by substituting `calendar year 2007' for `calendar year 1992' in subparagraph (B) of such section 1.''.

(3) Rounding.—Section 32( j)(2)(A) (relating to rounding) is amended by striking ``subsection (b)(2)'' and inserting ``subsection (b)(2)(A) (after being increased under subparagraph (B) thereof)''.

(b) Earned Income To Include Only Amounts Includible in Gross Income.—Clause (i) of section 32(c)(2)(A) (defining earned income) is amended by inserting ``, but only if such amounts are includible in gross income for the taxable year'' after ``other employee compensation''.

(c) Repeal of Reduction of Credit to Taxpayers Subject to Alternative Minimum Tax.—Section 32(h) is repealed.

(d) Replacement of Modified Adjusted Gross Income With Adjusted Gross Income.—

(1) In general.—Section 32(a)(2)(B) is amended by striking ``modified''.

(2) Conforming amendments.—

(A) Section 32(c) is amended by striking paragraph (5).

(B) Section 32(f)(2)(B) is amended by striking ``modified'' each place it appears.

(e) Relationship Test.—

(1) In general.—Clause (i) of section 32(c)(3)(B) (relating to relationship test) is amended to read as follows:

``(i) In general.—An individual bears a relationship to the taxpayer described in this subparagraph if such individual is—

``(I) a son, daughter, stepson, or stepdaughter, or a descendant of any such individual,

``(II) a brother, sister, stepbrother, or stepsister, or a descendant of any such individual, who the taxpayer cares for as the taxpayer's own child, or

``(III) an eligible foster child of the taxpayer.''.

(2) Eligible foster child.—

(A) In general.—Clause (iii) of section 32(c)(3)(B) is amended to read as follows:

``(iii) Eligible foster child.—For purposes of clause (i), the term `eligible foster child' means an individual not described in subclause (I) or (II) of clause (i) who—

``(I) is placed with the taxpayer by an authorized placement agency, and

``(II) the taxpayer cares for as the taxpayer's own child.''.

(B) Conforming amendment.—Section 32(c)(3)(A)(ii) is amended by striking ``except as provided in subparagraph (B)(iii),''.

(f) 2 or More Claiming Qualifying Child.—Section 32(c)(1)(C) is amended to read as follows:

``(C) 2 or more claiming qualifying child.—

``(i) In general.—Except as provided in clause (ii), if (but for this paragraph) an individual may be claimed, and is claimed, as a qualifying child by 2 or more taxpayers for a taxable year beginning in the same calendar year, such individual shall be treated as the qualifying child of the taxpayer who is—

``(I) a parent of the individual, or

``(II) if subclause (I) does not apply, the taxpayer with the highest adjusted gross income for such taxable year.

``(ii) More than 1 claiming credit.—If the parents claiming the credit with respect to any qualifying child do not file a joint return together, such child shall be treated as the qualifying child of—

``(I) the parent with whom the child resided for the longest period of time during the taxable year, or

``(II) if the child resides with both parents for the same amount of time during such taxable year, the parent with the highest adjusted gross income.''.

(g) Expansion of Mathematical Error Authority.—Paragraph (2) of section 6213(g) is amended by striking ``and'' at the end of subparagraph (K), by striking the period at the end of subparagraph (L) and inserting ``, and'', and by inserting after subparagraph (L) the following new subparagraph:

``(M) the entry on the return claiming the credit under section 32 with respect to a child if, according to the Federal Case Registry of Child Support Orders established under section 453(h) of the Social Security Act, the taxpayer is a noncustodial parent of such child.''.

(h) Clerical Amendment.—Subparagraph (E) of section 32(c)(3) is amended by striking ``subparagraphs (A)(ii) and (B)(iii)(II)'' and inserting ``subparagraph (A)(ii)''.

(i) Effective Dates.—

(1) In general.—Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after December 31, 2001.

(2) Subsection (g).—The amendment made by subsection (g) shall take effect on January 1, 2004.